The City council approved the tax rate shift last Tuesday, making commercial property tax 175% of residential tax, the maximum difference allowed by Massachusetts state law. Councilor Mendonça was the lone voice against the shift, preferring a slightly smaller shift of 170% or so as reported by Lyle Moran.
I’ve already mentioned that I believe that property tax rate is a relatively small consideration of many businesses. Despite that businesses claim taxes are always of utmost importance, studies are actually mixed, showing that infrastructure and education investments may be more important than tax cuts (link to a lit review by Center of Budget and Policy Priorities). In otherwise identical suburbs fighting over businesses, tax cuts may help, but their impacts in central cities like Lowell seem less clear to me.
However, I wanted to highlight that the City estimates the average residence will pay go from paying $3,271 annually to $3,273, a $2.45 increase. However, $3,271 in 2012 dollars is $3,327 in 2013 dollars.* Therefore, the average Lowell single-family homeowner will actually pay less in inflation-adjusted dollars than last year. This might be why City Manager Lynch mentioned on a WCAP interview:
I don’t know how much of a difference it would make to have… the reduced taxes for the businesses. I don’t know if that would necessarily get more businesses in here. Councillor Mendonça has been asking us to come forward. This would be the year to have done it, if we were going to do it, because the increase was so small.
Manager Lynch also noted that he believes very large businesses moving to and making significant investment in Lowell are primarily lured by breaks from state taxes, not local property tax.
As a sidenote, it’s remarkable that Proposition 2 1/2 caps the total amount cities in Massachusetts may collect to 2.5% above the previous year, plus “certified” new growth. This means that every year inflation is more than 2.5%, which it usually is in a healthy economy, the city actually has to provide similar services with less money unless they pass an override. This is one of the reasons why cities are constantly looking for alternate revenue sources, such as fees and state and federal grants.
At the same City Council meeting, Mayor Murphy made a motion for the City Manager to investigate an entirely different taxing scheme that disincentivizes sitting on dilapidated or vacant properties rather than focusing on luring in businesses seeking low taxes. I’ll do a follow-up post on that soon.
* The rate must still be approved by the State of Massachusetts.↩
Learning Lowell 
To clarify Proposition 2 and 1/2 – the incremental tax increase of 2.5% applies incrementally to the beginning year of the law (I believe that was 1984, but that is not too material). Because Lowell has not always increased the base tax levy by 2.5%, it has developed some “headroom” relative to the Prop 2 and 1/2 limit, I believe that to be in the order of $10M and maybe more due to this year’s minimal increase. So next year Lowell is not limited to the 2.5% increase, and with $10M being about 9% of the tax levy it could increase taxes by 11.5% next year (plus whatever may be contributed by “new growth”.) That would however become an issue of affordability for the residents, and likely not supported by the administration nor city council.